Banc of America cut its rating on E*Trade to “sell” from “neutral” and slashed its price target on the stock to $2 from $9. It also lowered its 2008 earnings estimates on the company to a loss of 20 cents a share from a profit of $1 a share.

E*Trade shares have lost about 80 percent of their value since January as Wall Street brokerages have taken billions of dollars of write-downs on assets underpinned by subprime mortgages. Escalating defaults on these loans to people with weak credit have roiled credit markets worldwide.

On Nov 29, E*Trade said it was getting a $2.55 billion cash infusion from investors led by Citadel Investment Group, which is also buying the mortgage-related securities portfolio that has been the primary source of the discount brokerage’s recent woes.

Several brokerages, including Goldman Sachs and Credit Suisse, on Friday cut their earnings estimates on E*Trade, citing the high costs and dilutive terms of the bailout deal between the company and Citadel.

BofA analyst Michael Hecht believes negative value at E*Trade cannot be offset by the retail brokerage business, which he said was a dwindling asset.

Hecht expects the best-case scenario for E*Trade to be another $1 billion addition to its reserves, while the worst case would be a continued fire sale of assets resulting in an outright sale of the company’s home equity portfolio.

E*Trade’s firesale of mortgage-backed securities has conjured up a new worst-case scenario for Wall Street’s portfolio of subprime assets by knocking their value even lower.

The company had on Nov 29 also named Chief Operating Officer Jarrett Lilien as the acting chief executive officer, to replace CEO Mitchell Caplan, who stepped down.

Hecht said he found the move “odd,” raising the question of how much has really changed in the senior management suite, and limiting the board’s ability to attract new senior talent.

Shares of the company closed at $4.60 Friday on the Nasdaq. (Editing by Pratish Narayanan)